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As economic growth languishes and worries about the specter of deflation mount, much-needed infrastructure development and new sources of project financing could provide a panacea to global growth.

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Given a politically charged business landscape and a financing environment where the capital providers continue to favor traditional energy, there is nonetheless plenty of opportunity to be an alternative energy boutique, says Izzet Bensusan. But an integral part of the territory is “educating” various stakeholders.

Global Finance : How have the carbon credit markets changed in recent years?

Izzet Bensusan : Carbon credits were intended as a way to control the emission of carbon into the atmosphere and ultimately to reduce emissions. And in great part they have succeeded.

The Kyoto discussions allowed us to attach a cost to the way energy was used. And that gave rise not only to carbon credits but also to the process of trading them. Carbon credits became a new commodity, usable and tradable. The consciousness and the trading have directly contributed to a lowering of carbon emissions. Last year 50% of new power generation in the US came from renewables.

GF : Why has the development of the carbon credit and renewable energy credit markets been so tricky?

Bensusan : The markets have worked well in the US because the standards have been regional. There has been a recognition that the practices and the standards vary from market to market. So regional exchanges, such as Chicago and California and Alberta [in Canada], have been very successful.

It’s been a different story in Europe. To try and accommodate regional differences and to prevent manipulation by the various players, administrators established baseline emission standards that required regular monitoring and auditing. The process of approving projects became very bureaucratic and complicated. With the recession, carbon emissions dropped and the need for carbon credits declined sharply. In some ways, overallocation sharply reduced the need for credits. But analysts also failed to accurately gauge the impact of the recession on energy use, and feed-in tariffs [long-term contracts for renewable energy at a fixed price per kilowatt-hour] did not take into account falling demand. The transfer of carbon emission has also shifted from the US and Europe to Asia as manufacturing moved east.

GF : And what impact has this shift had?

Bensusan : Shouldering so much of the manufacturing, China gets the brunt of the criticism for its energy practice. I don’t think China would be against reducing emissions if the US and Europe were willing to pay for it. But asking China to produce iPhones and computers at the lowest prices is impossible without shifting some of the costs [for reducing emissions] to the consumer. It doesn’t make economic sense.

GF : What are the broader challenges for renewable energy?

Bensusan : Because renewable energy costs have also begun coming down, there has been wide-scale adoption of renewable energy. Even emerging markets countries, such as India, that had been wedded to energy sources such as coal have begun turning to renewable energy. So there is demand.

Nonetheless, renewable energy projects still suffer from the high cost of capital and the reluctance of capital providers to supply project financing. There is more equity financing coming in than ever before, but no real [project] financing programs that can assure low-cost capital.

When you go borrow for an oil well, you can find a bank that has been doing that for 75 years. When you are looking to do something in the renewable [energy] area, the market is simply not deep enough. People don’t understand the industry.

We put together a portfolio of various renewable assets that will generate an annual return of 13% to 14%. But getting the money is still not easy. So there is an education element to this.